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The D.C. Circuit has handed down its long-anticipated ruling in ACA International v. Federal Communications Commission, and in doing so invalidated key aspects of the U.S. Federal Communications Commission’s 2015 Omnibus Ruling embracing an expansive view of liability under the Telephone Consumer Protection Act. A broad coalition of businesses challenged the FCC’s Omnibus Ruling—also known as the FCC Order—shortly after it was issued in 2015. The D.C. Circuit heard argument in the case in October of 2016, and, nearly 18 months later, on March 16, issued a unanimous ruling vacating in part and affirming in part the FCC’s Order.

For companies that use SMS to communicate with their customers—or help users of their service connect with friends through the use of SMS messages—the critical aspect of the ACA Ruling is its rejection of the FCC’s broad interpretation of what constitutes an Automatic Telephone Dialing System. The ACA court concluded that the FCC’s interpretation of ATDS—which potentially encompassed all modern smartphones or any other equipment that could be programmed in the future to sequentially or randomly generate and dial numbers—was “unreasonably and impermissibly expansive.”

Definition of Automatic Telephone Dialing System

When it enacted the TCPA, Congress defined the term Automatic Telephone Dialing System as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” Because the TCPA broadly prohibits the act of “making a call using” an ATDS, the question of whether equipment qualifies as an ATDS is a key threshold question in assessing TCPA liability.

Because the TCPA speaks in terms of a system’s “capacity,” courts had previously diverged on the issue of whether a system should be judged in terms of its present capacity—meaning the system’s capabilities at the time a call was placed—or the system’s potential capacity, meaning what the system could theoretically do if modified or altered. In its 2015 Ruling the FCC adopted the latter interpretation, concluding that any system with the “potential ability” to have the requisite capacity, if modified, qualified as an ATDS. As many commentators observed, this expansive definition appeared to encompass essentially all modern smartphones, as smartphones could easily be outfitted with software or an app that would provide the requisite capacity.

The D.C. Circuit squarely rejected the idea that all smartphones could reasonably be brought within the statutory definition of an ATDS. In the court’s words, “[i]f every smartphone qualifies as an ATDS, the statute’s restrictions on autodialer calls assume an eye popping sweep.” Noting that an individual consumer who texted 10 friends about a party without their prior express consent could be subjected to thousands of dollars of TCPA liability under the FCC’s definition, the court concluded that “it is untenable to construe the term ‘capacity’ in the statutory definition of ATDS in a manner that brings within the definition’s fold the most ubiquitous type pf phone equipment known, used countless times each day for routine communications by the vast majority of people in the country.”

In rejecting the expansive definition embraced by the FCC, however, the ACA court did not establish any alternative definition for an ATDS. The court did suggest that focusing on a system’s present versus potential capacity was not a helpful framework, and that the focus should be more on the question of “how much is required to enable the device to function as an autodialer?” But the court offered no potential answer to this question, confirming only that no definition that encompassed all modern smartphones would suffice.

The court also noted that in considering whether the FCC’s interpretation was reasonable, the question of whether the FCC is correct in its interpretation of the phrase “to make a call” was not currently before it. The court explained that under the FCC’s interpretation, calls run afoul of the TCPA if they are made on equipment with the capacity to function as an ATDS, even if that functionality is not used in making the call. The court further explained that if calls only incurred liability when autodialing functionality was used, a broader interpretation of ATDS could be reasonable, as this would not convert every call made on a smartphone into a TCPA violation.

In sum, the ACA ruling leaves no doubt that ATDS must be defined in such a manner that does not treat all calls made on smartphones as potential TCPA violations. While this provides some relief to businesses, however, much remains to be seen in terms of how the FCC will revise its understanding of the term.

The TCPA does not impose any liability on a caller when the “called party” has provided consent to be contacted. In the 2015 order, the FCC concluded that “called party” meant the actual current subscriber to a given telephone number. In so doing, it rejected the argument that “called party” should be interpreted to mean the intended recipient of the call, or, in the case of a reassigned number, the previous holder of a telephone number who had provided consent to be contacted. As a result of this interpretation, companies are liable for calls to numbers that have been reassigned from a party that has provided consent to receive calls to one that has not. The FCC Order, however, provided that companies would not be liable for their first call to a reassigned number.

ACA concluded that this one-call “safe harbor,” however, was “arbitrary and capricious.” In particular, the court noted that there was no reason to think that a company’s reliance on a prior consumer’s consent became less reasonable after placing a single call to that number, particularly if there is no requirement that the new recipient inform the company of the change. Conversely, if a company made a call several years after a number was reassigned, that would be less reasonable than making three calls in the several minutes immediately after a number is reassigned.

As with the ATDS issue, the import of the court’s rejection of the safe harbor is not clear. Nothing in the court’s ruling precludes the FCC from simply abandoning the safe harbor altogether and imposing liability for all calls made to reassigned numbers. The court noted that the FCC is currently working on creating a registry for all reassigned numbers, and potentially creating a separate safe harbor for businesses that reach a reassigned number after checking this registry. Until such a system is in place, however, the current status of liability for calls to re-assigned numbers is unclear.

Revocation of Consent

In the 2015 order, the FCC concluded that “a called party may revoke consent at any time and through any reasonable means that clearly expresses a desire not to receive further text messages.” Petitioners urged the ACA court to reject this ruling, and instead hold that where a company sets forth a specific mechanism for revoking consent to receive calls, a customer’s revocation is only effective if it follows the prescribed method. The court affirmed the FCC on this point, holding that the commission “could reasonably elect to enable consumers to revoke their consent without having to adhere to specific procedures.” The court also clarified, however, that while the FCC Order prohibited a company from unilaterally imposing a specific opt-out mechanism on consumers, it did not prohibit the parties from contractually agreeing to such a specific opt-out.

Scope of Exception for Healthcare Related Calls

In its 2015 order, the FCC exempted certain healthcare related calls from the consent requirement of the TCPA, but limited application of this exception to “calls for which there is exigency and that have a healthcare treatment purpose.” The FCC specifically excluded from the exception calls “that include telemarketing, solicitation or advertising content, or which include accounting, billing, debt collection, or other financial content.” Petitioners suggested that this limited exception was arbitrary and capricious, but the court rejected that argument and left the limited exception in place.

Takeaways

The D.C. Circuit’s rejection of the FCC’s broad interpretation of ATDS and the FCC’s reassigned numbers ruling is welcome news for businesses. However, it is unlikely to significantly decrease TCPA litigation in the short term. Critically, while the court rejected the FCC’s interpretation of what constitutes an ATDS and the “one call” safe harbor for reassigned numbers, it did not adopt any alternative interpretations, leaving that to future FCC rulemaking. Until that rulemaking takes place, litigants will continue to battle over what technology qualifies under the statutory definition of an ATDS until either the FCC or the courts of appeal set forth a viable alternative definition. And the potential liability for calling reassigned numbers using an ATDS will remain in a state of uncertainty.​​​​​​